Sunday, December 27, 2009

"When I use a word," Humpty Dumpty said, in rather a scornful tone, "it means just what I choose it to mean — neither more nor less."

"The question is," said Alice, "whether you can make words mean so many different things."

"The question is," said Humpty Dumpty, "which is to be master — that's all."

We can only wonder what Humpty Dumpty would have said about health insurance. The word "insurance" used to have a clear meaning. But as insurance has come increasingly under the control of our masters in the various levels and branches of government, the thing itself bears less and less correspondence to the word we use to describe it.

Life comes with a natural uncertainty, and each of us must find a way to handle this fact. We can identify and, in many cases, measure the various risks that we face. This helps us see the connection between what we do and the likelihood of various consequences. Not all smokers will get lung cancer, and we don't know which smoker will. But we do know that smokers are more likely to get it than are non-smokers.

This kind of knowledge enables individuals to make voluntary agreements with each other to share or trade risks. A corn farmer might fear that the price of corn will be lower at harvest time; the company that makes corn flakes might fear that the price of corn will go higher. Each can reduce their risk by agreeing now on the future price.

From this we see the natural emergence of a market for futures and other "derivatives." There is no need for government involvement beyond its basic role in the enforcement of contracts and of laws against theft and fraud.

Similarly, people can agree on methods of sharing and reducing health risks. What we call "health insurance" is an agreement between individuals to contribute to a fund that is used to pay some of the expenses of those who are unlucky enough to require medical treatment. Those individuals who engage in behavior, such as smoking, that is more risky to their health would be required to pay more into the fund.

Faced with this higher premium, each risk-taking individual must decide whether or not the enjoyment he gets from the risky behavior is worth the greater insurance expense. If not, then he is likely to reduce his risky behavior.

Suppose the government forbids "discrimination" between smokers and non-smokers. Smokers would not have to pay the full cost of the higher risk they bring to the insurance fund. Smokers and non-smokers together would pay equal, but higher, average premiums. This would attract more smokers to buy insurance, but many non-smokers would feel ripped off and drop their coverage. The result of "well intended" government intervention is higher average premiums and fewer people with health insurance.

If the government now forbids "discrimination" against people with "pre-existing conditions," then someone who already has lung cancer could purchase a policy from an insurance company to have the medical expenses paid by all the other policyholders. Such a rule would require an increase in everyone's premium to a level that would cover all potential costs. Otherwise, the insurance company would be certain to fail.

Pre-existing conditions by their very nature are uninsurable. We apply the word "insurance" to situations that entail risk, not certainty. The treatment of pre-existing conditions requires existing resources that must come from the patient or from someone else. If they come from someone else, we call it "charity" or "welfare." Congressmen can call it whatever they want but cannot change the underlying reality.

What Congress is now attempting to do will shift the cost of medical risks onto taxpayers. But with an unlimited supply of possible medical conditions, there is potentially no limit to the liability that taxpayers will soon bear.

Sunday, December 20, 2009

In Homer's epic, The Odyssey, Ulysses knows that he, like other men, will not be able to resist the Sirens' song and the temptation to get closer and turn his ship into the rocky shores of destruction. He wants to lead his ship and crew safely past the land of the Sirens, but he also wants to hear the Sirens' song and to know when he has passed the danger.

So he orders his men to fill their ears with beeswax and to bind him tightly to the mast so that he can take no action that might endanger the ship as his men continue to row.

Each of us has lived a similar story in that we have adopted rules of conduct that might at times clash with our temptations but guide us safely through the challenges of life. Sometimes we adopt these rules consciously and take responsibility for living up to them. But for the most part we absorb such rules, as part of our growing up, from the example of those who were here before us. We might never know where the rules came from, yet in our present comfort imagine that we can do without them and suffer no ill consequences.

Today, we recognize this tale of Ulysses and his men as the timeless story of our need to bind our leaders to the mast of limited authority, to keep the ship of state on the straight and narrow. In its modern form we recognize it as our Constitution, which grants limited powers and responsibilities to states and branches that comprise the federal government.

The beeswax represents the "red tape" or rules that restrict the actions of government bureaucrats. Many of us are tempted to see this red tape as a tedious impediment to getting things done, as a source of inefficiency. But the rules we call “red tape” are not there to restrict citizens engaged in private endeavors. They are there to restrict those who would serve and regulate us, and to prevent them from taking on the powers of little kings.

Our constitutional rules, as intended by the Framers, maintain a practical conservatism with regard to the foundations of our society. The Constitution is hard to change, and it limits the way that we produce legislation. By maintaining a constitutional attitude we reduce our chances of frivolous action, stoked by the passion of the moment, or the terror of the crisis, or the urgings of the demagogue.

It is a part of citizenship to remember where we came from. There is no role for those who blurt, "We won. Get over it." We have a way of doing things that has worked for over 200 years, and the tyranny of the majority has never been an acceptable part of it.

The essential history of Western civilization and this exceptional Republic began over 2000 years ago, not far from Jerusalem. As men learned to envision a destiny that transcends this life, no man could rightfully claim ultimate authority over any other man. Each individual was important, and in those few countries where this idea was absorbed into the culture and rules of conduct, the people as a whole flourished and grew stronger.

Ultimately, moral rules are only as good as the people who live by them, and constitutional rules are only as good as the people who interpret and enforce them. That we were fortunate enough to inherit the rules at all could be attributed to luck or to grace. However it got here, and whether or not we understand it, the culture bequeathed to us by our ancestors contains more wisdom than any one of us could expect to figure out in a lifetime.

With the light of each day now growing brighter, let us take time to remember where we really came from, and have a happy Christmas.

Sunday, December 13, 2009

Truth is not determined by majority vote. Any talk of a "consensus" in science is best not taken as the final word. As Somerset Maugham once put it, "If 40 million people say a foolish thing it does not become a wise one, but the wise man is foolish to give them the lie."

Climatology is a science, not to be confused with environmentalism. The heart of environmentalism is not to be found in the natural sciences. It is ideology and nothing more. That is why it ends in "-ism."

Environmentalism is itself not a monolith, but its dominant strand is distinctly statist in character. As such, its main nemesis is the science of economics, not climatology or any of the other natural sciences.

A sound understanding of economics is all that is needed to discredit the emerging interventionist social agenda of the environmental movement. The methods that they recommend cannot deliver the results that they promise.

It is common to hear accusations of "junk science" hurled against environmentalists, particularly those touting the dangers of climate change.

These accusations might be well taken and, if so, would be sufficient to derail the CO2 "Cap and Trade" juggernaut. But the real objective of the environmental movement appears to be in the social realm. That means the control of people, with environmental controls serving merely as the instrument.

We have had considerable domestic and international experience with governments that micromanage the lives of their residents. The more governments interfere in our lives, the more things go wrong. The people are poorer, less healthy, and less able to adapt to the vagaries of nature and of other men. If ever a science were settled, this would be it.

It should be obvious that each individual’s actions affect the rest of us to some greater or lesser extent. The same is true with respect to the environment around us. Complex interactions present us with great regularities, as well as many unexpected events. It has always been so; and we can expect it to remain so.

The environmental activists now meeting in Copenhagen need to mature a bit, and come to understand that we have less to fear from CO2 than from bad ideas.

Instead of sucking the oxygen out of the debate, they should admit that they know far less than their claims would suggest. They need to learn humility, an essential ingredient in anyone who would speak of science.

We need not con ourselves that we know enough to predict the Earth's temperature one hundred, or even twenty years from now. Even less certain should we be that we have the power to control it.

What we can control is our readiness to face whatever comes. But to follow the advice of the Copenhagen activists, or those who voted for the Waxman-Markey bill, is the path of fools.

It is the path of weakness and dissipation.

We know better, and we have done better. It is free societies that have done the best in meeting economic and environmental challenges. It is free societies that have led the way in developing new energy sources and making them incrementally more efficient.

If we, as consumers, really feel that burning coal for energy is too dirty, we don't even need to put a tax on it. All we need to do is stop wasting money on subsidies to low-yield, low-reliability sources, such as wind and solar, and remove the irrational and crushing regulatory burdens from more promising energy sources, such as nuclear. We don't need to subsidize any energy source.

The technology has already advanced sufficiently that private competition to serve customers would result in a systematic replacement of old energy sources by cheaper and cleaner sources.

If governments would stick to their job of protecting us from aggression, rather than blocking us from progress, we would now be wealthier, healthier, safer, and cleaner.

Sunday, December 06, 2009

Have you noticed how often it is assumed that people in business are ruthless, greedy and unprincipled in their pursuit of profit, but that people in government are assumed to be selfless, benevolent and unerring in their pursuit of social justice?

Is there something about the two types of service that magically transforms human nature, or is there just some mysterious sorting mechanism?

Here's an example. A corporation, let's say a big oil company, gives a monetary grant to a group for the purpose of funding research related to the issue of climate change. Around the same time, a government agency gives a monetary grant to another group, also for the purpose of funding research related to the issue of climate change. Is there a difference? Are the results of the two grants portrayed in the media in exactly the same way?

If the research results cast doubt on the current great social cause célèbre, it is unlikely that the recipients of the corporate funding will escape being labeled as obviously biased, in the pocket of big business. The common assumption is that the results will always support the corporation's interest. But no such stigma is automatically attached to governmental funding of such research, even though a contrary result may be just as likely to lead to loss of future funding.

When an issue is politicized in the way that the issue of "man-made global warming" is, it is reasonable to assume that those who dispense the funds will harbor hopes about the results expected to come from the research. This is not to suggest that researchers are necessarily corrupted by the source of their funding, but there can be a mutual self-selection, and some researchers seem to have a strong desire to please.

Does size matter when it comes to influence or temptation? It should be noted that while private funding of climate-change research is measured in the millions, government funding is measured in billions of dollars.

Also, those who manage to find evidence supporting an activist "carbon reduction" program just happen to receive aggregate funding that is two to three orders of magnitude greater than those researchers who find no cause for alarm.

This lopsided funding might help explain the widespread belief that global warming must be a clear and present danger. And the high stakes might help explain the stridency of the debate such as it is. One side, however, insists that there is a "consensus," that "the science is settled," and that anyone who disagrees with the need for massive government intervention to abate global warming is either morally or intellectually defective.

That the science is not settled is demonstrated by the large number of scientists who do, indeed, stand against the so-called consensus. There have also long been charges from independent researchers that some leading believers in anthropogenic global warming have been mishandling the statistics. A famous example of such mishandling involves Michael Mann, the Penn State researcher who has had to step down from his job pending investigation of the recent "Climategate" e-mail scandal.

The e-mails are important because they purport to show Mr. Mann and other "top climate researchers" joking about how to fudge the statistics to get the results they want.This raises the question of integrity with regard to the work of Mann, et al. whenever they have presented statistical series, such as their famous "hockey stick" graph that claims to show global temperatures remaining flat until the industrial era, and then rising sharply. Unfortunately for Mr. Mann, two Canadian statistics experts, Stephen McIntyre and Ross McKitrick, had already shown how Mann's methods, not the data, made the past look cooler and recent times appear significantly hotter. Fudge melts.

The fear of catastrophic, man-made global warming is a socialist's dream. It offers rich opportunities for the aggrandizement of government. If it didn't exist, they would invent it. Did they?

Monday, November 30, 2009

When talking to Canadians about the drawbacks of their universal healthcare system, I often heard the retort, "But I sure don’t want an American-style system!" My honest response was, “Don't worry, Americans don’t have one either.”

“American-style” used to connote “free and prosperous.” Respect for economic freedom has always been associated with the American way of doing things. Now, although this association persists in our minds, it does not persist in the reality around us.

Government is already the largest medical "insurer" in the country, and pays at least half of all US medical expenditures. It is also the most wasteful. The Medicare program is an actuarial disaster that, within five years, will begin running deficits that will increase rapidly over time, leaving it no way to cover its trillions of dollars of unfunded liabilities. Attempts to save it will require benefit reductions and tax increases.

Federal tax breaks for health insurance are applied unevenly, and give company group plans an advantage, which tends to bid up prices for everyone else. State regulations chop up the medical-insurance market into separate, non-competing segments, thereby reducing the choices available to consumers. Worse still, each state imposes mandates that require insurance companies to include in their health insurance coverage items that customers don't need and don't want. This forces customers to pay for coverage combinations that they would never choose in a free market.

Private insurance companies produce real benefits. In contrast, the government has grown so far beyond its competence that it is an unambiguous destroyer of wealth. Private companies provide services that, in a free market, people pay for voluntarily. Each customer has a choice. But most government services, and the corresponding tax burden, are not voluntary. If you don't like the service, you have nowhere else to go; but you are forced to pay anyway.

The health-care glass is now less than half full of private initiative, the portion that sustains the life of the system. Politically rigged incentives have gradually shifted control of resources away from producers and patients, and have increased the decision-making role of government agencies and third-party companies. It was predictable that this shift would lead to problems, but too many critics misunderstand the direction of causation and accuse the government of not interfering enough.

We need to ask some fundamental questions:

1. What makes us believe that government is competent to tell us who is, and who is not, qualified to practice medicine – or to decide for us which drugs, diagnostics, and treatments we should have available to us?

2. Why do we allow government, whether state or national, to interfere with our right to enter into private contracts with private insurance companies, or any other kind of company?

3. Why do we allow government entitlement programs to tax the charitable and crowd out private social initiatives?

The answer to all three questions is, "We shouldn't." If we and our ancestors had always asked such questions, then we would now have an “American-style” healthcare system. We would look to private experts and accreditors for advice on whom to consult on medical matters. We would see that private insurance companies, by showing us the cost of our actions, help us reduce the risk that is natural to our lives. This improves our standard of living. Bailouts do not reduce risk: they are not true insurance.

We would also recognize that government is a barrier to innovation in pharmaceuticals, diagnostic techniques, and treatments. Politicians have perverse incentives, so they stifle us in the name of safety, and they create monopoly at the expense of inventiveness.

Most government programs have the sad effect of moving resources from higher-valued to lower-valued uses. Through taxes and regulations, governments reduce our ability to undertake private, and better informed, acts of service.

The Senate, the House, and the President are pushing us in exactly the wrong direction.

Sunday, October 11, 2009

"Peace" can mean different things to different people. At the superficial level, we speak of being at peace when we do not see actual war or acts of violence. But peace comes in at least two forms. There is the peace of free, voluntary cooperation; and there is the peace of subjugation.

The first is the idealized American version: As individuals, we are free to associate or disassociate with others as we choose. We are free, and "have the right," to defend ourselves and our property against aggression, but we do not have the right to initiate the use force against those who respect our rights to life, liberty and property.

Such a social environment fosters cooperation between fellow countrymen, even though they may be strangers. I might be friends with the local butcher, but loathe the baker; and I might never have met the candlestick maker. But I can find common interest with each: We trade; we share our talents; we help each other to grow and to prosper. No force is necessary to make this happen.

Compared with the opportunities available in such a country, crime rarely pays. Violence is the method of the loser, ignorant of the benefits of cooperation.

The second form of peace, the peace of subjugation, stands not on the natural incentives of cooperation, but on the constant threat of state power, the threat of violence always implicit.

This is the peace of the totalitarian regime, where the trains might run on time but only at the expense of many things that we would prefer to have instead. In such a society, the politically favored see "rights" much differently. They assume the right to take from others, and to impose obligations on others — all in the name of the public good.

Justice, responsibility lose meaningSuch societies tend to stagnate and disintegrate. Their failure to economize on the use of state power is expensive; it takes its toll on the trust and character of the people. But how do such regimes come into existence in the first place?

A free society is not itself immune to disintegration. The first signs appear as a perversion of our notion of "rights." The rights of freemen are purely defensive. But suddenly we find that the politically favored are granted rights to offend, to make claims against us. Fewer transactions are voluntary; real justice is replaced by fluffy notions of "social justice." The freedom to decide for oneself is replaced by "freedom" from personal responsibility. The private life is replaced by the political life. "To each his own" becomes "winner take all."

Those who protest against this rising, officially sanctioned aggression will themselves be described as "unreasonable" and "violent-tempered." But the protesters in this case are defending what was once considered to be rightfully theirs. There is something unnatural about living in the peace of subjugation.

If the Nobel committee truly understood the nature of peace, then the award of their prize to our president would, indeed, be a great honor.

Thursday, September 03, 2009

Published in The TennesseanSeptember 3, 2009Reforms have had negative resultsBy Richard J. Grant

Calling something "reform" does not make it good or necessary. Campaign finance reform has been neither. It has produced effects that are the opposite of those intended.

We were told that campaign finance limits would help protect us from political corruption, from vote buying, from cynicism and negativity, and reduce the amount of resources directed into political campaigns. But this has not been the actual result.

The No. 1 beneficiaries of campaign finance limitations have always been incumbent politicians. These are the same people who vote for such limits. Incumbents are already better known than potential challengers, who must work harder to build up name recognition. As in the promotion of any new product, new candidates must spend more resources to become known to the electorate and to make their positions clear.

With campaign finance "reform," the percentage of incumbents re-elected has increased significantly. Far from leveling the playing field and making elections more competitive, the funding and spending limits prevent many potential challengers, especially those who lack personal wealth, from entering the race.

Even the best challengers are hampered. Limits on individual donations force candidates to solicit smaller amounts from a larger number of contributors. This is less efficient than raising larger amounts from fewer contributors. Although it might seem desirable that a candidate demonstrate the serious support of a wide base, the limits give an artificial advantage to the incumbent, who would already have an established contributor list.

Low turnout is connected

By reducing the competitiveness of political campaigns, campaign finance laws have contributed to the low voter turnout numbers that we observe. By limiting the amounts that a citizen may contribute directly to any one candidate or party, the campaign laws enhance the growth of political-action committees and other vehicles of indirect participation in the campaigns. These indirect methods are less efficient than giving directly to the candidate. The citizens' political voice is thereby distorted and made less certain.

The same is true for limits on the political contributions of corporations. The political involvement of corporations has increased as governments have increased the level of their interference in business and the economy. Corporate political expenditures, whether for lobbying or campaign contributions, could not pay off if governments did not have the power to interfere the way they do. As it is, companies see it necessary to divert some of their resources into defending themselves against abuses of government power. Such abuses might be instigated by either statist ideologues or by unregenerate business competitors who lobby government for their own special advantage.

If the Supreme Court had protected us from the expansion of government powers that were once considered to be unconstitutional, then the court would not now need to hear arguments concerning the constitutionality of campaign finance laws. It is unlikely that such laws would ever have existed. Let us hope that, on September 9, the Supreme Court begins the process of correcting its past errors by ruling campaign finance limits, such as those in the McCain-Feingold law, to be unconstitutional.Richard J. Grant is professor of finance and economics at Lipscomb University and a scholar at the Tennessee Center for Policy Research.

Tuesday, July 21, 2009

Politicians have two talents: 1) ignoring or hiding the full costs of their projects, and 2) pretending that their stated intentions are as good as results, even when their projects can't possibly succeed. The so-called "stimulus" plans of the current and previous administrations exhibited both of these characteristics. They cost far more than we were told, and provided stimulus in name only. Worse than that, their net effect is de-stimulus.

Belief in "stimulus plans" is to economics what bloodletting was to medicine. Such economic quackery persists because it serves political interests. As the signs of recession, such as job losses and mortgage defaults, began to show up in the economy, politicians at all levels came under pressure to "do something." So they did. The result was one of the biggest agglomerations of pork-barrel projects in history. In other words, political supporters were rewarded at the expense of everyone else -- with a net loss to the economy.

Politicians rarely have the time or sophistication to explain why "doing nothing"is better. A good economist will explain that the current recession was caused by the government trying to be the sugar daddy to all people. To encourage business investment and homeownership, in 2001 the Federal Reserve pushed interest rates down to unsustainable levels. Two other government creations, Fannie Mae and Freddie Mac, encouraged risky behavior by guaranteeing mortgages. Nice though it sounds it helped set us up for a fall.

The resulting boom was artificially enhanced and misdirected. The recession simply revealed the truth. That is why people hate it and try to cover it up. Rather than accept that house prices were too high, that businesses made unsuitable investments, and that difficult changes would be necessary, the government tried to stop the consequences.

When people accept the truth, a recession is a time of healing, a correction of past errors. But when the government tries to stop a recession, it slows the healing, or causes a longer-term deformity. Right now, the government is prolonging the suffering.

The fake stimulus plan is only part of the problem. Through broader intervention, the current government is putting us on a permanent, long-term path of lower real economic growth. That will be its legacy as it seeks to expand its power over the medical, energy, transportation, financial, and insurance industries.

These, and other, industries are already overregulated. That is why we are having problems with them. As they come increasingly under government control, and are converted from profit centers to cost centers, it will change the whole incentive and innovation structures of these industries. Where once we saw no limits to our potential to create, produce, and serve, we will see more arbitrary constraints imposed upon us by force.

We should be moving in the other direction. Real stimulus would come from substantial cuts in government spending matched by commensurate reductions in income-tax rates. Also, a systematic program of real deregulation would allow us to develop a less intrusive and more natural legal structure.

Sunday, March 29, 2009

If the purpose of the new Public-Private Investment Program (PPIP) is to make the financial markets work better, then it will fail. If the purpose is to transfer wealth from U.S. taxpayers and holders of U.S. dollars to those who are politically favored, then the plan will succeed.

It always amazes me how much effort some people will expend to get something for nothing. Increasingly, the role of the federal government has become one of aiding and abetting such efforts. As the Treasury secretary takes on his new role as wet nurse to the financial industry, we should be under no illusion as to who is really being milked.

This latest plan, like most government plans, is a net destroyer of wealth. Does it not make sense that, if you want markets to work, you should not interfere with them? But I hear you respond, "We need a basic legal structure for markets to work!" Do you mean things like laws against theft and fraud? Do you mean laws against taking wealth by force from one group of people and giving it to another group and then telling us that it is an "investment" for everyone's benefit?

Word games usedI thought the Constitution was quite clear on this matter. But it is just a bunch of words, and, in our brave new world where "troubled assets" can suddenly be transformed into "legacy assets," we know how to handle words. We can even divert $700 billion into failing businesses and call it a "stimulus package." Though I am waiting for someone to ask the donors of these funds just how stimulating it was for them.

Some donors haven't been born yet. Rather than let us feel the full consequences of our voting habits, our political leaders prefer to spread the taxes over many years. The new government debt will be serviced forever by our descendants. But did we really score one for the present generation? No way. Real current resources have been commandeered by the government and handed over to those they seek to reward or control. Our legal structure protects us, right?

Sorry, no. The trend in America is an increasing disrespect for private property and for any private initiative. That means there is an increasing disrespect for people. When will we stop pretending that theft and fraud are OK when the government does it?

Sophomoric documentThe sophomoric document that introduces the PPIP is full of false assumptions. We don't have a "broken market," we have a government that has been interfering with the market. We wouldn't need the government to "facilitate price discovery" if the government weren't already distorting prices. It is precisely because the government does not want true market prices to be revealed that it chooses to go 50-50 with private bidders to buy up, and bid up, speculative assets from companies that are officially "too big to fail."

We will never know the free-market prices. But we do know that the U.S. government has become too big to succeed.

Friday, February 20, 2009

This current recession will end. But that will be no thanks to government "plans" and "packages."

The new "Financial Stability Plan" has something in common with its companion "stimulus package," It will do the opposite of what its name promises.

When Treasury Secretary Timothy Geithner introduced his plan, and the markets fell, it was said that the plan lacked adequate detail. But we don't really need the details to know that the plan is wrongheaded.

First, let's deal with the silly assumption that the current downturn was caused by a free market. In the U.S., governments account for almost 40 percent of all spending, and banking is one of the most heavily regulated, and distorted, sectors. The government even has a monopoly in the creation of currency, a power that it uses to interfere daily in the credit markets. It should be no surprise that we have problems.

Now Mr. Geithner wants to "expand lending," require "mortgage foreclosure mitigation," and to "drive down overall mortgage rates." What a nice man. Shouldn't we be happy? Not if we understand economics.

The Federal Reserve does not have a clue what interest rates should be, and neither does the Treasury Secretary. Interest rates are a market phenomenon. Pushing rates down artificially encourages people to act as though we have more capital available than is really the case. Home buyers believe they can afford bigger mortgages, and businesses believe it more profitable to expand. But the government has sent them false signals through the market. That is the kind of interference that got us into this mess.

Bureaucracy takes overPushing more money into the economy is not the same as creating more savings and capital. But it does temporarily reduce interest rates, thereby discouraging saving at a time when we need more capital.

As in all markets, when the government forces prices down, it creates shortages. Wonder why credit markets are "frozen"?

There is a mistaken belief that falling home prices are the cause of the crisis in the financial industry. The real reason is the failure of many borrowers to live up to their loan agreements.Not understanding this, the Treasury Secretary wants to prop up home prices, and also wants to prevent foreclosures. To the extent that he succeeds, he will prevent the home market from adjusting to reality.

He will also further hurt consumers by weakening the usefulness of collateral to banks. Especially if judges or government agencies are brought in to rewrite mortgage contracts in favor of borrowers, banks will protect themselves in the future with far stricter loan requirements. The kinds of people the government claims to be helping now will be hurt later.Even though government has demonstrated itself to be a poor regulator and an incompetent loan officer, Geithner's plan has the effect of expanding government influence over the banking system.

By taking government bailout money, rather than doing the honorable thing, bankers have abdicated their private moral authority. They used to be merely undercapitalized. Now, they have been bureaucratized.